Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 14 February 2025
Good afternoon,
Today, we have made the decision to keep the key rate at 21% per annum.
Inflation notably accelerated at the end of 2024. According to our estimates, this was the result of the considerable overheating in demand that could even have become stronger in the second half of last year. At the same time, factors that will be slowing down inflation have been gaining momentum. In the first place, this is a continuing cooldown in the lending market coupled with a rise in households’ saving activity. Thus, we are now more certain that monetary conditions have already become restrictive enough for inflation to start decelerating in the next few months. Therefore, we have decided to continue the pause in key rate increases. If the earlier monetary policy tightening turns out to be insufficient, we will be ready to reconsider the issue of raising the key rate at our next meeting.
I would now dwell on the reasons behind our today’s decision.
Firstly, as regards inflation.
Price pressures remain significant. The underlying inflation indicators exceeded 10% by the end of 2024, which is certainly an intolerably high level in our view. In addition to the underlying factors, the price dynamics in December were also affected by the earlier weakening of the ruble. In particular, the growth of prices for products highly dependent on the exchange rate, primarily electronics and household appliances, sped up.
The underlying component of inflation was largely fuelled by inflation expectations. They are still very high among all groups of economic agents. Analysts who participate in our macroeconomic survey have raised their inflation expectations for 2025. At the same time, according to recent data, businesses have substantially lowered their price expectations for the first time since 2024 Q1, which is an optimistic sign.
High-frequency data on inflation in January and February suggest that current price growth has slightly decelerated compared to the end of 2024. However, it would be premature to talk about a reversal in the trend.
As to the revision of the inflation forecast for 2025, I would like to notice that this year has started from a very high level, that is, very high price growth rates. Due to considerable inertia, it will take time to slow down inflation and prices will rise by
I will now speak of the economic situation.
The recent statistics for 2024 Q4 show that GDP growth has sped up. According to our estimates, the economy’s upward deviation from a balanced growth path has not decreased.
Alongside inflation, another major indicator of overheating is the labour market. Although staff shortages are still acute, businesses continue to signal that the situation has started to return to normal. Our regional branches report a higher number of companies that have been decreasing the demand for labour. This means a more active reallocation of employees from some industries to the ones that are still experiencing considerable staff shortages. Overall, companies are reducing their recruitment targets and no longer plan to raise wages as fast as last year. Combined with the measures taken by businesses to enhance their efficiency, this will help make the growth rate of wages more in line with the rise in labour productivity.
The updated forecast takes into account that domestic demand expanded more significantly by the beginning of 2025 than previously expected. Accordingly, GDP growth will be slightly higher this year, specifically
Now, as regards monetary conditions.
Since our December meeting, interest rates in the financial market have edged down, whereas non-price bank lending conditions have become more restrictive. Generally, the dynamics of loans and deposits suggest that monetary conditions are tightening further. Lending is already cooling down in all market segments. Furthermore, households have increased their saving activity.
The reduction in market rates is associated with two factors. The first one is that market participants have revised their expectations of the key rate path downwards. As a result, yield curves in the money and debt markets have notably shifted lower since the end of December. Secondly, we have fine-tuned some regulatory measures. This has partially eased the excessive tightening of monetary conditions that was related to the regulation. Nonetheless, interest rates are still rather high.
Affected by restrictive monetary conditions, lending has been slowing down since December. Over the past two months, banks’ corporate and retail portfolios have both contracted. The decline in lending activity is one of the first stages of the transmission of our decisions to the economy, while the inflation rate is the final one. It will take time for the current slowdown in lending to fully translate into prices.
It is worth taking into account that the deceleration in corporate lending is associated not only with our policy. Another important factor is budget expenditures. Normally, budget payments peak in December. This year, budget expenditures were high in January as well, exceeding their seasonal norm. This was explained by earlier prepayments under state contracts. Having received budgetary funds, companies were actively repaying bank loans. Hence, the data about the decline in lending are, so to say, noisy. According to our estimate, if adjusted for the budget payments, the slowdown in lending is more moderate. We consider that the combined effect of the budget and lending will result in more modest dynamics of money supply. As is evident from recent data, money supply is growing more slowly than at the end of last year. We will continue to closely monitor changes in budget expenditures, comparing them, among other things, with the pace of the cooldown in the lending market.
We have revised the lending growth forecast for this year downwards to
Briefly about external conditions.
The world economy has continued to expand at a moderate pace. According to our updated forecast, the dynamics of the key items of the balance of payments have remained nearly the same compared to October.
It is worth noting that, beginning from our February meeting, we switch from publishing forecast for Brent oil prices to Russian oil price used for tax purposes. This price better reflects how the situation in the oil market affect the key indicators of the Russian economy.
I would now dwell on the risks to the baseline forecast.
The balance of risks is still shifted towards proinflationary ones.
As regards the factors that might cause a deviation from our baseline scenario towards a higher inflation rate, I would notice risks related to the external environment. The threats of new trade wars and fragmentation of global markets entail risks to business activity worldwide and might lead to a decline in the demand for Russian exports. As a result, we might face a decrease in both the price and quantities of exports. Moreover, there are still risks associated with inflation expectations and the labour market.
The key disinflationary risk is a more substantial deceleration in lending. Our baseline scenario assumes a gradual and controllable decrease in lending activity. Nevertheless, the risk of a sharper slowdown does exist. This is why we will be tracking credit dynamics very closely.
Changes in fiscal policy parameters, including the scope of subsidised lending programmes, might influence our decisions. The baseline scenario implies the return to the fiscal rule in 2025, which will have a disinflationary effect.
Furthermore, when making our decisions, we will also take into account geopolitical factors. They remain a source of high uncertainty.
Winding up, I would like to comment on monetary policy outlook.
We have concluded that the pause in key rate increase is the most balanced decision in the current conditions. At our next meetings, we will need to make sure that the existing trends are leading to a steady decrease in inflation. If it turns out that monetary conditions are not sufficiently restrictive for a sustained slowdown in lending and inflation, we do not rule out the possibility of a further key rate increase. Whatever the case, monetary conditions should remain tight for a longer period. Therefore, we have raised the forecast path of the key rate for
Thank you for your attention.
Q&A FOR THE MEDIA
QUESTION from TASS:
Ms Nabiullina, have you discussed the option of reducing the key rate and the prospects for a rate cut in the near future?
ELVIRA NABIULLINA:
We have not discussed a rate cut. We considered two options: keeping the rate unchanged and raising the rate.
Regarding the timeline for a potential rate cut, you may have noticed our key rate forecast and the range we provided. It includes both the possibility of a rate cut this year and the possibility — we do not rule it out — of a rate hike. Everything will depend on how stable trends develop.
QUESTION from Interfax:
To what extent do you believe the current slowdown in lending has already become sustained? Did you remove this factor from the signal because you are now confident in this trend?
You also noted a risk that the slowdown might be more severe than needed to meet the target. How real is this risk?
Lastly, what signal options did you discuss today?
ELVIRA NABIULLINA:
As I mentioned earlier, the data for December and January are heavily distorted for corporate lending.
For retail lending, we have observed a sustainable slowdown since the middle of last year. In this case, we can clearly identify a steady trend.
Regarding corporate lending, we need more data to confirm whether this slowdown is persistent, as the current significant deceleration includes seasonal factors. This year’s budget payments exceeded seasonal norms and stayed high in January. Therefore, we will need more time to verify whether this represent a lasting trend, and we will continue to monitor the situation.
Regarding the signal options, we considered both the moderately tight signal we ultimately issued and a neutral one. The neutral option was proposed by colleagues who believed the accumulated tightness of monetary conditions, along with lending trends and other factors, was already sufficient to bring underlying inflation down to 4%.
ALEXEY ZABOTKIN:
Credit is certainly a key demand driver, but monetary aggregates as a whole better reflect the total monetary impact on demand. Isolating credit alone would therefore be misleading. Our primary focus is the dynamics of monetary aggregates, and in this regard, we are already observing a slowdown. We anticipate this trend becoming increasingly stable.
QUESTION from RBC:
Recently, the potential resolution of the Ukraine conflict has been discussed. This has already become a significant market factor, supporting both the ruble and stock prices. Does the Bank of Russia incorporate this factor in its scenarios? In your opinion, what would be its broader economic impact? Should it occur, how might this affect inflation and consequently the key rate, according to your forecasts?
ELVIRA NABIULLINA:
This factor is not currently in our baseline scenario. I believe it would be premature to include it at this stage, particularly in the baseline scenario. Much depends on how events unfold. Currently, we cannot precisely assess its potential economic and inflationary impact.
QUESTION from Argumenty i Fakty (Kaluga):
Despite the high key rate, inflation keeps rising. Some argue that this means rate hikes are having the opposite effect, actually fuelling inflation by increasing the costs of servicing loans for households and businesses. Is this accurate?
ELVIRA NABIULLINA:
True, inflation is higher than we would like, but without rate increases, it would be substantially higher and still accelerating, as I have stressed repeatedly.
However, the view that a higher key rate fuels inflation is, in my opinion, fundamentally wrong. While a higher key rate does increase the costs of servicing loans for households and businesses, it simultaneously curbs excess demand that exceeds the economy’s capacity to produce goods and services. This effect of suppressing excess demand is much stronger for inflation. Thus, raising the rate definitely slows price growth.
When critics say high rates drive inflation, they cite rising business interest expenses. Yet these represent only a portion of production costs, and typically not the largest portion. I exclude over-indebted firms, for which such costs may be large, but for most, they are modest. Our estimates (which I have shared before) show that loan costs have stayed below 5% of production costs for five years. Many firms are debt-free, funding growth through equity.
The bulk of costs comprises non-interest expenses. These rise with the general price level, including raw materials, supplies, equipment, and wages. So-called cost-push inflation is merely the flip side of demand-pull inflation, reflecting corporate competition for scarce resources (particularly labour).
By raising the key rate, the Bank of Russia limits growth in firms’ core costs. The gains from this rate increase — restraining growth in core costs — significantly exceed any increase in interest expenses.
When demand is overheated, companies can readily pass all cost increases through to prices. Our rate hikes cool demand, forcing businesses to choose: either keep raising prices and lose market share (given constrained demand), or cut costs and boost productivity. Since market share losses are undesirable, this creates an incentive to reduce costs and improve labour productivity — exactly what our economy needs.
QUESTION from Reuters:
We have seen a rally in the ruble in recent days. Do you think the strengthening of the ruble is already affecting inflation? If this strengthening continues and becomes more sustained, could it lead to an earlier rate cut?
ELVIRA NABIULLINA:
The ruble strengthened in December 2024 and is strengthening now, which is certainly a disinflationary factor, but its effect on prices has a lag. We can already see a slowdown in the prices for goods that depend on the exchange rate, primarily smartphones and household appliances, though this effect is naturally spread over time.
As I noted, if the strengthening of the ruble is sustainable, it will become a disinflationary factor, and we will factor it in alongside other considerations. However, the ruble alone cannot determine the timing of rate cuts. All relevant factors must be weighted.
QUESTION from Rossiyskaya Gazeta:
The Summary of the Key Rate Discussion states that the Board of Directors discusses under what circumstances the rate could move up or down. Could you please explain if there is a shortlist of the most important indicators – for instance, inflation rates, lending, business inflation expectations, the ruble exchange rate, and budget expenditures – that would help accurately predict rate movements and the Bank of Russia’s decisions? Are these five distinctive indicators sufficient to understand whether the key rate will move up or down?
ELVIRA NABIULLINA:
Indeed, the question of indicators – key metrics that influence decisions – comes up periodically. We publish the Summary precisely to explain our priorities and the logic behind our actions, as there is unfortunately no fixed list of indicators. We analyse almost everything that could affect the economy and inflation – including a broad range of indicators reflecting both external and internal economic conditions, with regional dynamics being particularly important.
Of your list, we certainly consider the budget, though focusing more on the deficit than expenditures, as this primarily drives demand dynamics. While we monitor business inflation expectations closely, household expectations receive equal attention. No indicators are permanently paramount; different indicators become more relevant in different situations.
We typically prioritise indicators showing the largest deviations from historical averages or stable trends, or those with the most significant changes since the last Board meeting. These often provide more information about how the situation and inflation pressures are evolving.
You may recall that in March 2023, when similar questions arose, we published triggers, or rather areas that we focus on to decide whether to raise or lower the key rate. These included current inflation, inflation expectations, consumer activity, lending, and labour market conditions, which are very important, as well as external and fiscal risks. Since March 2023, those risks and factors have materialised, causing us to raise the key rate.
As I said, different factors matter at different times. Currently, our primary focus is on immediate inflationary pressures, labour market conditions — since they also signal economic overheating, and business sentiment. Essentially, we are assessing the degree of persistent excess demand in the economy.
Another key focus currently is assessing monetary policy tightness — determining whether its current degree suffices to bring inflation steadily to the target.
In short, we look at the overall picture using multiple indicators, emphasising the most important factors in each period. The Summary reflects this to clearly communicate what was most important when making decisions.
QUESTION from Market Power project:
Could the expected easing of monetary conditions due to the narrowing of spreads on bank funding rates be a reason for raising the key rate? Or does the response of lending in January and February allow you to avoid compensating for this easing?
ELVIRA NABIULLINA:
Indeed, spreads have narrowed as we adjusted our decisions in banking regulation, primarily regarding the liquidity coverage ratio. Specifically, we revised the timeline for banks to meet the LCR on their own and expanded their access to irrevocable credit lines. This largely contributed to the narrowing of spreads.
However, we do not believe that the narrowing of spreads has caused a general easing of monetary conditions that needs to be compensated for. On the contrary, we believe that monetary conditions as a whole — both price and non-price conditions, and not just in terms of deposits but also lending rates — have not eased but instead tightened.
QUESTION from Kommersant-Sibir (Novosibirsk):
The increase in the key rate will make credit resources more expensive. In this situation, can we expect a rise in the number of corporate bankruptcies?
ELVIRA NABIULLINA:
We do not expect a wave of bankruptcies. Yes, of course, there are highly leveraged companies for which the growth of debt servicing costs is an important factor that substantially reduces their profits. However, the financial position of most companies depends mostly on the growth of costs: it may worsen if the main costs associated with raw materials, supplies, wages (as I mentioned earlier), higher tariffs, and more expensive transport logistics, including due to sanctions, continue to grow at the same pace.
The increase in these costs is a direct consequence of overheated demand, which is indicated by high inflation. Therefore, in our view, it is just as important for businesses as it is for consumers that inflation returns to a moderate level as soon as possible, and a high key rate is necessary to achieve this.
Overall, despite rising costs, including interest expenses, businesses are maintaining financial stability. We monitor this closely, particularly through tracking the number of requests for loan restructuring submitted to banks. While we observe an increase in restructuring requests among small and medium-sized businesses (a notable trend), overall restructuring levels remain below 2023 benchmarks. The quality of bank loans is another indicator (of business financial stability — Ed.). The corporate non-performing loan ratio remains low at 3.7% — under the 4% threshold. We see no signs of widespread issues in this area.
QUESTION from RIA Novosti:
As of 10 February, according to the Bank of Russia, inflation in the country stood at 10%. When do you think inflation will peak, after which it will slow down or at least reach a plateau? When will we return to single-digit inflation?
ELVIRA NABIULLINA:
Indeed, inflation is currently unacceptably high.
Regarding our inflation forecasts, we have raised our inflation forecast for this year. There are different metrics to consider here.
There is annual inflation, which measures inflation over the past 12 months. Essentially, this compares inflation, for example, in February of this year with February of last year. This annual inflation indicator depends on how the base effect from last year drops out (of the calculation — Ed.). We estimate that annualised inflation will peak in April or May.
As for current inflation, we believe that month-on-month price growth adjusted for seasonal factors should start to slow down soon. Some increase is possible due to the indexation of tariffs in July. But most importantly, we expect this monthly inflation, which characterises just the current price pressure, to be about 4% on a year-by-year basis by the end of 2025.
However, since inflation was high at the beginning of the year, by the end of the year annual inflation will be
QUESTION from Bitkogan project:
You noted it remains premature to consider a peace agreement and its likelihood. At what stage of development should peace arrangements be before the Bank of Russia begins incorporating them into its monetary policy?
ELVIRA NABIULLINA:
I would really prefer not to speculate on this topic. Time will tell. I think it will be obvious to everyone when it becomes appropriate to factor it in. As I mentioned earlier, our baseline scenario currently assumes no change in geopolitical conditions.
QUESTION from Economical telegram channel:
I have studied the regulatory documents governing the Bank of Russia’s activities, including our Constitution and federal laws, and nowhere did I find information that the Bank of Russia has a mandate to freeze deposits in commercial banks. In fact, the media talk about this a lot and make many absurd arguments on the topic. My question, which I hope will put an end to these discussions, is: does the Bank of Russia actually have such a mandate? I am not talking about specific cases in which banking licences are revoked. If such a mandate does exist, what criteria would the Bank of Russia apply to use it?
ELVIRA NABIULLINA:
The Bank of Russia does not have such authority under the law. Moreover, such authority is completely unnecessary. As I have said before, this is nonsense.
QUESTION from Bloomberg:
Since early January, 60% of sanctioned oil tankers have been out of operation. Is the Bank of Russia assessing the risk of significant export revenue declines in the coming months? Could this cause problems with currency supply in March?
ELVIRA NABIULLINA:
Currently, we observe no currency supply issues in the market. We are monitoring the sale of foreign currency revenues by exporters, and it shows no signs of decline.
As for the possibility of a decline in export revenues, there could be various factors related to developments in the global economy, fragmentation, and trade wars, which could slow global economic growth and affect demand (for our exports — Ed.). So the factors may vary. We consider this as part of the risk scenario. Every year, we present a risk scenario, which also includes risks related to a reduction in export revenues.
QUESTION from Fomag.ru:
I have a question regarding the slowdown in lending, as there are several countervailing factors that oppose the prevailing trend. For instance, if large businesses are denied loans, they turn to issuing bonds.
Another factor is that smaller borrowers, if they cannot get regular loans, turn to microfinance organisations.
A third factor is that borrowers, when struggling with their debt burden, have recently started to delay their payments, using funds intended for debt repayment to maintain liquidity before eventually settling their debts. Are these factors, acting contrary to the Bank of Russia’s policy measures, significant or not?
ELVIRA NABIULLINA:
We certainly monitor the three factors you mentioned, as well as others. Yes, our bond market is growing, and in our view, this is positive. However, despite this growth, the volumes of bond issuance and fundraising are still much smaller (than the volumes of bank lending — Ed.).
Incidentally, people often look at how many bonds have been placed, but it is important to look at net placement by subtracting redemptions and analyse it year by year. We see that there is no dramatic surge, and there is still some seasonality. Therefore, we are not observing a significant shift here. If companies raise more funds on the bond market and rely less on loans, this is still borrowing in another form, which is completely normal. We have always said that it is desirable for the capital market to develop, with companies raising funds through bonds and equity financing.
Speaking of potential migration to microfinance institutions among retail borrowers, we observe no substantial outflow. These markets are simply not comparable in scale. The amounts people borrow from microfinance organisations are fractions of a percent compared to what they borrow from banks. Our macroprudential regulation, which is aligned for both banks and microfinance organisations, also helps prevent this shift.
Regarding delayed payments, we also monitor payment discipline and observe no major issues in this area so far.
QUESTION from Expert:
Analysts highlight the 12% average increase in utility tariffs budgeted for 2025 as one of the most substantial proinflationary factors. They also recall that in 2018, the Bank of Russia convinced the Ministry of Finance to reduce the pace of indexation for utility tariffs to an average of 4% per year. As a result, from 2018 to 2020, tariffs grew in the 3.6% to 4.3% range. According to Rosstat, inflation during the same period ranged from 3% to 4.9%. Do you consider slowing the pace of indexation to the inflation target to be an important disinflationary factor in the current environment? Could it help? What is the Bank of Russia’s stance on the planned increase in tariff indexation in the budget?
ELVIRA NABIULLINA:
The reduction in the pace of indexation for tariffs of natural monopolies and utilities was indeed an important disinflationary factor in the period from 2016 to 2018. These Government measures greatly helped the Bank of Russia at the time to (relatively) stabilise inflation at the 4% target.
A sharp increase in utility tariffs is certainly a proinflationary factor. Why is so? The reason is that while utility services may not constitute a very large share of the consumer basket — around 6%, if I am not mistaken — a rapid rise in utility tariffs fuels inflation expectations and has a secondary inflationary effect. The fact that high inflation expectations persist requires us to maintain a tighter monetary policy.
However, we understand that when costs and prices in the economy rise at high rates for an extended period (unfortunately, this has been the case for four years now), a certain level of utility tariff indexation is necessary, as these companies also have their financial models and so on. It is crucial to strike a balance here, as it is not sustainable to simply pass on the costs (of companies providing these services — Ed.) to tariffs for the population while retaining certain inefficiencies, or excessive costs of enterprises. Therefore, a balance must be found. This is the prerogative of the Government.
From our side, we have looked at the contribution of this increased tariff indexation to inflation compared to the scenario in which tariffs were indexed at the target inflation rate of 4%, as in previous years. By our estimates, this contributes an additional half a percentage point to inflation.
QUESTION from NTV:
Last summer, it was reported that the Bank of England’s decisions were influenced by Taylor Swift’s concert tour, as spending in cities where her concerts took place surged sharply. We might not have a Taylor Swift tour here, but we celebrate Valentine’s Day on 14 February, followed by the Defender of the Fatherland Day on 23 February and then International Women’s Day on 8 March. These are all occasions for spending in restaurants, and on food and flowers. To what extent do these single-day holidays characterised by mass consumer spending influence inflation? Does the Bank of Russia take this into account when making decisions?
ELVIRA NABIULLINA:
I can say right away that holidays do not hinder low inflation. We certainly take these factors into account, but there are differences here. For example, a concert or the FIFA World Cup are one-off events, while holidays occur every year at the same time. In economic terms, they are seasonal, and this seasonality is naturally factored into our analysis.
You know, for instance, that before 8 March, flower prices rise sharply, but after 8 March, they immediately drop back. This happens every year and does not affect annual inflation or inflation expectations.
ALEXEY ZABOTKIN:
I would even say that what happens to flower prices in the run-up to and on 8 March does not affect March inflation as a whole, since by the end of March, or by 15 March to be exact, the prices return to early March levels.
QUESTION from Krasny Sever (Vologda):
According to the Bank of Russia, mortgage lending returned to more reasonable levels last year after the overheated state-supported surge in 2023. At that time, the mortgage portfolio grew by more than 30%, while in 2024, it grew by 13.4%. Does this help address the main issue of ensuring affordable housing for people?
ELVIRA NABIULLINA:
You are absolutely right in saying that mortgage growth rates have returned to more reasonable levels. You are also entirely correct that the core issue is housing affordability, not just mortgage accessibility. Mortgages alone cannot ensure housing affordability, even with low interest rates, as the main affordability driver is that the growth of household incomes keeps pace with, or ideally outpaces, the growth of housing prices.
In recent years, the opposite has been true: housing prices have grown faster than household incomes. The situation is now changing, and we observe that after the key rate increase and the cancellation of non-targeted mortgage programmes (though we still have large-scale targeted mortgage programmes) the rise in housing prices has slowed down. According to 2024 Q4 data, prices have even declined in some regions, including so-called overheated regions.
Therefore, the key factor for us is slowing inflation, as lower overall inflation will curb the rise in housing prices and reduce pressure on household real incomes. This is the way to make housing more affordable. As inflation slows, market mortgage rates will also decline. Currently, they are indeed very high.
I always remind people that when inflation was around 4%, market mortgages were affordable and developed actively without subsidised programmes.
QUESTION from Moskovsky Komsomolets:
A year ago, the Bank of Russia started with a rate of 16% and expected inflation to fall to 4.5% by the end of the year. In reality, however, inflation ended up at 9.5%. Currently, the Bank of Russia has started the year with a key rate of 21% and expects inflation to fall to
Perhaps it would make sense to introduce two coefficients: for example, in the baseline forecast, inflation would fall to 8%, as you say, while in a more conservative scenario, it could rise to 10.5% by the end of the year — something like this to provide clearer guidance.
ELVIRA NABIULLINA:
You know, no one can see the future; no one has a crystal ball. Like many market participants, analysts, and the Government, we make forecasts based on the data available to us at the moment. As new data or events emerge — last year being particularly eventful — we are compelled to revise our current assessments and update forecasts accordingly. This is completely normal.
Currently there are many proinflationary factors, as you mentioned. Still, much has changed compared to last year. First, the key rate is already at 21%, which is a high level of tightness. Some even consider it excessive. This is a lot of pressure, and according to our estimates, it should be enough to slow inflation.
If we see that inflation is not slowing sustainably, we are prepared to raise the rate further. But for now, we see cooling across all lending segments. Although, as Mr Zabotkin reminded us, lending is not the only important factor. We expect the budget to also have a disinflationary impact this year, and we will monitor how sustainable this is.
Alternative scenarios, as you mentioned, do exist. We update them once a year when we are preparing the Monetary Policy Guidelines.
I mentioned the risk scenario, which is largely caused by external events, but we also have a proinflationary scenario (due to domestic factors — Ed.). If the proinflationary scenario materialises, we will certainly consider adjustments to our monetary policy to bring inflation down.
ALEXEY ZABOTKIN:
It is important to note that in a scenario where we start from a different set of assumptions, leading to additional and more sustained inflationary pressures, the result would not so much be a different inflation path but rather a different rate path. Should we anticipate these circumstances, we would adjust our monetary policy to ensure tighter monetary conditions than in the baseline scenario.
In other words, the key message is that differences in assumptions have a greater impact on the projected rate path than on the projected inflation path. This is the essence of inflation targeting: in any circumstances, inflation is brought to the target over the policy horizon if it is known exactly what assumptions are realised.
ELVIRA NABIULLINA:
In other words, this does not mean that we would accept a proinflationary scenario in which inflation is higher. Instead, we would tighten monetary policy if proinflationary factors cause inflation to accelerate. That is, we would adjust our policy to ensure inflation still reaches the target. This is not about accepting a proinflationary scenario.
QUESTION from Nezavisimaya Gazeta:
Given the continued tight monetary policy and the anticipated economic slowdown, does the Bank of Russia understand which sectors will now mostly require targeted support (such as subsidised lending)? Is the Bank of Russia, together with the Government, developing a list of such sectors or any special subsidised lending programmes? After all, the question arises as to how we can support the development of a supply-side economy if lending is slowing and fiscal stimulus is also fading. How do we achieve this?
ELVIRA NABIULLINA:
First, I would like to emphasise that the economic slowdown is not due to tight monetary policy or high interest rates, but rather to a significant reduction in the pool of available resources, primarily labour. In these conditions, slowdown is inevitable. The only question is whether it will be accompanied by high inflation or not. Our policy is aimed at ensuring that it is accompanied by a reduction in inflation, which is already at high levels.
Second, before addressing specific sectors, I want to make a general point: it is important to distinguish between an economic slowdown and a recession or crisis.
During a recession or crisis, large-scale anti-crisis measures are indeed appropriate. The Government actively used them during the pandemic and in 2022, as you may recall. We were easing monetary policy. This is what anti-crisis policy looks like.
However, during a cyclical slowdown from an overheated state, as is the case now, subsidised loans can only be provided on a very limited basis. Why? Because the larger the volume of subsidised programmes, the more we need to make loans less accessible to the rest of the economy through a high key rate, as demand and credit are already overheated. Therefore, such programmes must be very carefully calibrated.
However, determining these priorities is ultimately the prerogative of the Government. For our part, we also analyse what is happening in different sectors to understand the economic situation and how our decisions are affecting the economy, enterprises across various industries, and regions.
Regarding sources of development and the supply-side economy, we have always said — and I want to emphasise this again — that credit is important, but it is always a lever, an additional resource. The main resource for most businesses, especially when it comes to investment projects, is different. Investment projects are primarily financed through equity — either own or borrowed capital. We have seen that companies had strong financial results in previous years. This means they have their own capital to continue investing. By the way, this is reflected in the growth of investments.
Nevertheless, speaking of credit, we do not in any case expect a contraction in lending. The pace of credit expansion will simply be more moderate, but it will remain positive and also support economic growth.
The supply-side economy is ultimately about expanding production capacity: the ability to produce more with the same resources, primarily through increased labour productivity. Financial factors are important, but they are not the only ones. Improving the business climate, reducing administrative barriers, increasing competition, and enhancing the flexibility of the labour market are all crucial. We influence these factors not through monetary policy, but rather through the development of the financial market, which provides more opportunities for various forms of raising capital, including for firms’ growth.
However, in the conditions of the current structural transformation of the economy, it is certainly important that all resources, both financial and limited physical resources, are directed primarily to areas with higher returns and greater growth in labour productivity. This is the way the supply-side economy will develop.
A marker of the development of the supply-side economy, as opposed to the demand-side economy, will be the growth of production without acceleration of inflation. I believe this is a crucial indicator.
QUESTION from Russia 24 TV channel:
The Bank of Russia has been providing market participants with recommendations on incorporating ESG factors for several years. The ESG bond market is still in its early stages of development in Russia. In the Bank of Russia’s view, what kind of regulation does it need?
ELVIRA NABIULLINA:
Indeed, together with the Government we continue to build a regulatory framework and, most importantly, a system of incentives to take ESG factors into account. A key element here is the taxonomy of ESG factors. As you know, there are already pilot ESG bond issuances on the bond market. We are considering how this can be reflected in banking regulation. So this work is ongoing. It will likely be necessary to adjust regulation as progress is made in this area.
QUESTION from Nizhegorodskiye Novosti:
Last year, the country’s economy performed better than expected, but the rapid growth has also driven inflation higher. How can a balance be achieved — or is it even possible — to maintain both economic growth and low inflation? After all, subsidised loans provided to businesses fuel inflation. To what extent is inflation accelerating, given that there have been many increases in wages, pensions, and other payments, including since the beginning of the year?
ELVIRA NABIULLINA:
The balance you mention between economic growth and reducing inflation is indeed achievable. Moreover, we need to strike it, and our monetary policy is aimed precisely at this. It is designed to ensure that economic growth is not just a brief episode, even if impressively high, but rather sustainable over the long term. To achieve this, inflation must be brought back under control, as moderate price growth is the foundation for long-term economic growth.
Unfortunately, we have been in a prolonged situation in which the growth of demand has outpaced the economy’s ability to produce goods and services. To realign demand — which, as often noted, has surged far ahead of supply — the economy must grow at more balanced and moderate rates.
Therefore, some slowdown in economic growth as the economy exits an overheated state is a natural process. Our task is to ensure, as economists say, a ‘soft landing’ for the economy, with a quick return to sustainable growth rates and low inflation. Fiscal policy also plays an important role in this respect. It is crucial for us that both the budget deficit and the scale of subsidised programmes, as mentioned today, remain within the limits intended by the Government.
As for the growth of wages and household incomes, it is not the rise in wages itself that drives inflation, but rather the objective constraints that prevent labour productivity from growing at the same pace. It is precisely the gap between wage growth and labour productivity growth that is the proinflationary factor we are seeing now.
QUESTION from Vedomosti:
You note in your press release that economic growth in 2024 exceeded your forecast and that the growth path of the economy has significantly deviated from a balanced path, as has wage growth from labour productivity growth. Does the Bank of Russia have any estimates of what constitutes balanced economic and wage growth? Could you also say which industries are the main contributors to the overheating of the economy?
ELVIRA NABIULLINA:
Overheating of demand and the economy is not the overheating of specific sectors. We consider the economy as a whole, although imbalances may be greater in some sectors and smaller in others.
As for balanced growth rates, these are sustainable growth rates that do not lead to a constant acceleration of inflation, with inflation remaining at the target of 4%.
ALEXEY ZABOTKIN:
On the question of industries, macroeconomic logic is based on aggregate demand and aggregate supply. Therefore, it is appropriate to discuss the scale of the output gap for the economy as a whole and the extent to which aggregate demand deviates from potential. From a macroeconomic perspective, it is not entirely right to ask which industries are more or less overheated, as inflation reflects the overall picture of the economy as a whole.
We have not published quantitative estimates of potential, but as you may know, the Monetary Policy Guidelines include a detailed explanation of the logic of potential and the output gap, along with a chart of model estimates showing where we currently stand, based on the available data. A benchmark for balanced and sustainable growth, as considered in the forecast, is the GDP growth projection at the end of the forecast horizon, which is
QUESTION from InvestFuture project:
Ms Nabiullina, seven years ago, you gave a lecture in honour of Michel Camdessus, in which you stated, I quote, ‘Sanctions, trade wars, and currency wars create spillover effects that cannot be foreseen. This forces us to further increase buffers.’ Has the Bank of Russia already begun preparing for trade wars? How will it do this? You have already addressed this issue, but could you elaborate further on how trade wars might impact both Russian households and inflation dynamics?
ELVIRA NABIULLINA:
You know, we are always preparing for risks. We believe that our financial system must be ready for various shocks, as they occur often, so we carry out special reviews of financial market risks and financial stability.
As for trade wars, their net effect on the global economy may include slower growth through fragmentation — a scenario where resources fail to flow to their most productive uses, creating what we call bloc-based fragmentation. This could lead to slower global economic growth and, consequently, weaker demand for our exports.
Although the Russian economy’s dependence on the export of raw materials has decreased, it remains significant. We are certainly monitoring how this could impact us and reflect it in our risk scenario.
As for being prepared for such risks, I have always believed, and still do, that such preparation should include two key elements.
First, the economy should not have significant imbalances or weak links. When such shocks occur, these weak links can trigger a domino effect. For example, we had some relatively unstable banks in 2008 and 2014. We had to rescue banks, our financial system’s lifeblood. The recovery of banks in recent years has allowed them to support the economy and restructure loans.
High levels of corporate and bank debts are also weak links. When crises hit, debt overload of businesses and, by extension, households must be avoided.
Second, we need so-called buffers or reserves. An example of a macroeconomic buffer is the National Wealth Fund. If the situation worsens, we always have the ability to maintain necessary expenditures.
In the banking sector, capital buffers are important. By 2022, we had built up very strong capital reserves, which is why, despite unprecedented sanctions on our financial sector, banks were able to expand lending. Of course, we provided regulatory relief, but lending grew at a very high pace. Currently, capital levels are sufficient, but we believe banks should always maintain capital buffers. That is why we are gradually normalising regulation to allow banks to build up such buffers.
So when it comes to preparedness or preparation for such likely events, these are the two main aspects, in my view.
QUESTION from Elakhovsky YouTube channel:
You have already mentioned today that you do not have a crystal ball, but nevertheless, rate hikes by central banks with reserve currencies, primarily the Federal Reserve and the European Central Bank, have been painful for the currencies of emerging markets, including the ruble. This has been transmitted, among other things, through oil prices. However, recent inflation figures turned out to be high. Are you factoring in a reduction in dollar rates this year into your forecasts or not?
ELVIRA NABIULLINA:
First of all, the impact of decisions by central banks that issue reserve currencies has diminished in recent years precisely because the influence of cross-border capital flows has significantly decreased. Our exchange rate is now more influenced by exports and imports.
We certainly forecast and incorporate certain assumptions about the development of both the global economy and the interest rates. Currently, we are factoring in a minimal reduction in global rates.
QUESTION from Izvestia:
You plan to reduce macroprudential risk-weight add-ons for mortgages from 1 March, while also gaining the authority to set macroprudential limits on mortgages from April this year. Does this reduction mean that you will not use your authority to impose limits in the coming year?
I would also like to ask a clarifying question about the Government. On 7 February, President Putin set two strategic objectives for Prime Minister Mishustin, one of which is to reduce inflation. Previously, inflation was always the Bank of Russia’s responsibility, but now it seems the Government has been reminded of its role. Could you explain whether your cooperation with the Government will intensify as a result? What kind of assistance do you expect from the Government?
ELVIRA NABIULLINA:
On the first question, we will use this authority. We have slightly reduced macroprudential add-ons for mortgages in the medium-risk segment, in which the debt service-to-income ratio is below 70% and the down payment is above 20%.
However, we are likely to introduce macroprudential limits for mortgages with a DSTI ratio of 80% or higher and a corresponding down payment, and we may adjust the macroprudential add-ons in this segment.
Regarding the task of achieving inflation targets, inflation is always about the balance between supply and demand. Our monetary policy influences aggregate demand, but demand is also affected by a budget deficit, which is why we take the budget parameters into account. I reiterate that we very much hope that the disinflationary effect of returning to the fiscal rule, as currently planned, will materialise. Naturally, the greater the potential for expanding production — referred to as the supply-side economy in which structural measures are essential — the better. This falls under the Government’s competence.
We are actively cooperating with the Government. I think there is no need for any additional coordination efforts. We swap views on economic conditions and policy measures under preparation, but each side takes decisions completely independently within its own domain. For us, that means we set monetary policy on our own.
QUESTION from Frank Media:
Developers are increasingly using instalment plans for housing sales, while the Bank of Russia has previously stated that it sees risks in this practice and is preparing to introduce regulation for such transactions. What kind of regulation could this be? Could it be a new standard, but this time for instalment plans? When might that be introduced?
ELVIRA NABIULLINA:
We have indeed seen an increase in the share of transactions referred to as ‘instalment plans from developers’, i.e. not bank loans but instalment schemes offered directly by developers. The share of such instalment plans in housing sales has increased from 20% to 40%.
What concerns us here? We do have concerns, as the widespread use of these schemes creates risks for both buyers and developers themselves.
What are the risks for buyers? A person takes out an instalment plan, which is typically very limited in duration, currently averaging one to two years, based on what we have seen. The instalment plan is offered with the promise that mortgage rates will fall in the future, allowing the buyer to secure a mortgage. First, however, no one has guaranteed that this mortgage will be available. In the meantime, that person can end up in a difficult situation.
Second, from the perspective of the buyer’s debt burden, an instalment plan is still debt: even if it is interest-free, the buyer is obliged to pay certain amounts later. This debt is not reported to credit bureaus. If the buyer later applies for another loan, the bank has no information about this existing debt or whether the buyer can service it. This could lead to over-indebtedness. We regulate such risks of over-indebtedness in the banking sector through DSTI ratios. However, if an instalment scheme is used, this debt is not accounted for.
What are the risks for developers? If a buyer purchases housing through an instalment plan, the escrow accounts are not funded, and developers may lose the preferential financing they currently receive for their projects, as the funding of escrow accounts allows developers to receive loans at relatively low rates. That is a risk for developers.
Regarding standards, the mortgage standard that has recently come into effect applies to banks and does not regulate relations between individuals and developers. At this stage, we do not see how it could be extended (to developers — Ed.). Therefore, it is crucial that instalment plans are transparent for buyers, with no hidden fees or overpayments, and that people understand the potential consequences. This is why we have concerns. We will monitor the situation and decide on further actions.
QUESTION from Law and Finance project:
What has changed in the Bank of Russia’s assessment of the banking system in recent months? Do banks still maintain sufficient capital and liquidity to withstand a higher key rate if necessary?
ELVIRA NABIULLINA:
Banks have sufficient capital and liquidity. As I just mentioned, there was a large capital buffer before 2022, i.e. a significant amount of capital above the regulatory requirements, and this helped get through the most acute phase of the crisis. However, in
We believe that there should be a capital reserve above this minimum level, which we regulate, so we are tightening the requirements for banks to form this reserve, and macroprudential add-ons also contribute to the formation of this capital cushion. By the beginning of 2025, the banking sector has already accumulated an additional capital buffer of 1.2 trillion rubles due to these macroprudential add-ons.
As for the impact of high interest rates on banks and their capital, the capital reserve is not related to the need to adjust to high rates. However, high rates mean banks must carefully assess the risks for borrowers taking on expensive debts, and these banks must maintain sufficient capital buffers. Banks also have to build up the proportion of highly liquid assets. We have provided some relaxation in the timeline, but they still need to do this and improve the liquidity of their balance sheets. Overall, we expect banks to improve their capital positions and their liquidity positions. This will be a very good basis for financing the economy.
QUESTION from Pro.finansy project:
Today, the inflation forecast for 2025 was revised upwards. Is it possible that the Bank of Russia will cut the key rate before the inflation target is achieved?
ELVIRA NABIULLINA:
For us to begin cutting the rate, it is not necessary that inflation has already dropped to 4%. It is crucial for us to be confident that inflation is steadily slowing towards the target. In other words, if we see a pronounced deceleration trend, supported by sustainable factors rather than one-off events, which, according to our forecast, will bring inflation to 4%, then a rate cut is possible.
So far, we are not seeing these preconditions. We have not yet observed this sustainable trend. We are monitoring a wide range of indicators, and if the latest data on lending, savings (as we discussed), and the dynamics of monetary aggregates become sustained, then yes, a rate cut is possible. Conversely, if we see that proinflationary trends begin to prevail, then a rate increase is also possible.
ALEXEY ZABOTKIN:
In order for us to consider that we have enough data to judge the stability of trends, we need to see it reflected in both the dynamics of inflation itself and a reduction of inflation expectations. What we are currently seeing in the data is a slower growth of lending and a slower growth of monetary aggregates, but this has not yet translated into inflation and its expectations. Therefore, a rate cut without a simultaneous decrease in the inflation expectations of all types of economic agents is very unlikely. Inflation expectations need to go down.
ELVIRA NABIULLINA:
Thank you.